Between June and October 2007, Oklahoma/Texas wheat prices increased from about $5.50 to $8.96 ($3.46) and 2007-2008 wheat marketing year prices peaked at about $12.60 in mid-March 2008. Who predicted the price increase?
Between June and October 2008, Oklahoma/Texas wheat prices declined from about $8.80 to about $4.60. This is a $4.20 price decline, and now some analysts predict that wheat prices may approach $4. In June, who predicted the price decline?
During the beginning of the 2007-2008 wheat marketing, world wheat production was consistently overestimated. During the 2008-2009 wheat marketing year, world wheat production has been underestimated.
The changing value of the U.S. dollar relative to other major currencies and the 2008 financial fiasco also impacted 2008-2009 marketing year prices.
In the June 2007 World Agriculture Supply and Demand Estimates (WASDE), U.S. wheat production was projected to be 2.168 billion bushels and 2007-2008 wheat marketing year ending stocks were projected to be 443 million bushels. In the October WASDE report, U.S. wheat production was estimated to be 2.067 billion bushels and the ending stocks projection had been lowered to 307 million bushels.
In the June 2007 WASDE, world wheat production was projected to be 22.4 billion bushels and in October was projected to be 22.1 billion bushels. However, market analysts were projecting a major wheat crop failure in Australia. The WASDE report projected Australia’s wheat production to be 812 million bushels and it ended up at 479 million bushels.
The June 2007 WASDE report projected world wheat ending stocks to be 4.1 billion bushels and the October report’s estimate was 3.9 billion bushels.
Wheat production and ending stocks estimates continued to decline throughout most of the 2007-2008 marketing year. By contrast, wheat production and ending stocks estimates have been increased in each of the 2008-2009 marketing year WASDE reports.
In June 2008, the WASDE estimate for U.S. wheat production was 2.4 billion bushels and ending stocks were estimated to be 487 million bushels. In the October WASDE report, U.S. wheat production was projected to be 2.5 billion bushels and ending stocks 601 million bushels.
The world wheat production estimate increased from 24.4 billion bushels to 25 billion bushels. The world wheat ending stocks projection was increased from 4.9 billion bushels to 5.3 billion bushels.
Wheat prices were also influenced by the declining value of the dollar in 2007 and the increasing value of the dollar in 2008. From June through October 2007, the index of the U.S. dollar relative to other major currencies declined from about 82 to 77.5, a 5.5 percent decline. From June through October 2008, the index increased from about 73.5 to 86, a 17 percent increase.
Increases in the value of the U.S. dollar relative to other currencies effectively increase the price of U.S. wheat to foreign buyers and lowers U.S. producer wheat prices.
Then there are the hedge and index funds. During the 2007-2008 marketing year, funds were buying wheat contracts. There were more buyers than sellers and wheat prices were driven higher.
During the 2008-2009 marketing year, the funds have been liquidating long (bought) positions and selling commodities. There have been more sellers than buyers and wheat prices have declined.
Wheat market analysts that I respect have told me that they have given up trying to predict price direction. Most are concentrating on managing risk rather than fighting the market.
Producers should consider developing mechanical marketing strategies that do not depend on price outlook. Set dates and/or price levels to determine when to sell wheat. And, do not sell all the wheat at one time.